The U.S. Department of Labor Administrative Review Board (ARB) has concluded in Menendez v. Halliburton, Inc., that an employer's release of a whistleblower's identity to other employees violated the whistleblower's right to confidentiality, which by itself constituted an adverse action against the whistleblower and thus violated the anti-retaliation provisions of the Sarbanes-Oxley Act of 2002 (SOX).1 The ARB determined that whistleblowers are protected against unfavorable employment action that is "more than trivial" and "non-tangible,"2 even when the whistleblower's reasonable belief was ultimately mistaken.3
Background. On May 8, 2006, Anthony Menendez brought a claim against his employer, Halliburton, Inc., under Section 8064 of SOX, alleging that he suffered retaliatory adverse action as a result of his report to the U.S. Securities and Exchange Commission (SEC) and his employer's Audit Committee of perceived defective accounting practices.5
In early 2005, Menendez filed a confidential complaint with the SEC regarding Halliburton's revenue recognition practices. The SEC subsequently notified Halliburton of the complaint. Menendez later notified Halliburton's Audit Committee of the concerns included in his complaint, believing his identity would be kept confidential in accordance with Halliburton's policy.6 Subsequently, Halliburton's general counsel transmitted an email to relevant Halliburton employees mandating document retention to comply with the SEC investigation, stating that the investigation was based on Menendez's complaints and divulging his identity. As a result, Menendez was shunned by colleagues,7 relieved of responsibilities and assigned a new immediate supervisor ranking lower than his previous supervisor. In September 2006, the SEC formally notified Halliburton that no enforcement action was being recommended.8
ARB's Analysis. According to the ARB, a successful claim under Section 806 must satisfy a three–part test: (i) the employee engaged in SOX–protected activity;9 (ii) the employee suffered an adverse action;10 and (iii) the employee's action was a contributing factor in the adverse action.11 In this regard, the ARB determined that exercising his whistleblower rights under SOX was a "protected activity"; and as a result of Halliburton's divulging his name and thereby breaching his confidentiality, Halliburton caused Menendez to suffer an "adverse action." As to the third factor, the ARB requested the Administrative Law Judge (ALJ) to determine whether Menendez's protected activity was a contributing factor to his adverse action.12
In developing its standard, the ARB defined adverse actions as "unfavorable employment actions that are more than trivial, either as a single event or in combination with other deliberate employer actions. . . ."13 The ARB determined that an adverse action is one that would discourage a reasonable employee from taking protected action and is "not necessarily retaliatory or illegal."14
The ARB concluded that under SOX Section 806, the employee needed to demonstrate only that such activity would deter a reasonable person from engaging in protected activity. The ARB continued by noting that the employee also asserted that this action breached his right to confidentiality, in violation of SOX Section 301, which requires audit committees of public companies to develop procedures to handle anonymous complaints from employees. Construing Section 301's requirement that employers establish confidential channels of communication for their employees to afford consistency with Section 806's anti–retaliation provisions, the ARB determined that Section 806 provides whistleblower protection to employees who make use of such channels.15 Accordingly, the ARB agreed with Menendez that the right to confidentiality that Section 301 affords effectively establishes a "term and condition" of employment within the meaning of Section 806's whistleblower protection provision, and that the exposure of his identity in connection with his complaint constituted a violation of that employment term and condition.16
The ARB concluded that "a reasonable employee in Menendez's position would be deterred from filing a confidential disclosure regarding misconduct if there existed the prospect that his identity would be revealed to the very people implicated in the alleged misconduct."17
The Department of Labor concludes that a company's breach of a whistleblower's confidentiality constitutes a violation of the anti-retaliation provisions of the Sarbanes-Oxley Act and that the Act's protections extend to unfavorable employment action that is "more than trivial" and "non-tangible."